Banks could be crippled by flu pandemic

Thousands of people could be left literally penniless in the event of a flu pandemic as staff absences lead to a partial breakdown of Britain's cash distribution system, a report by Britain's financial watchdogs has warned.

The report follows a test of how Britain's financial system would cope in the event of an influenza pandemic, held by the Financial Services Authority, the Bank of England and the Treasury. The test, which ran for the six weeks between October 13 and November 24, warned absence rates at financial companies could top 60 per cent in some business units at the outbreak's worst point.

This would lead to bank branch closures and empty cash machines. The tripartite report also warned that some banks would not be able to replace expired cards - potentially leaving people with no access to money.

The report said: "Across the financial sector the heaviest impact of the (simulated) pandemic was upon the more labour-intensive parts, notably the provision of customer-facing retail financial services."

It warned of "bottlenecks" restricting the distribution of cash in some areas and said: "Growing staff shortages forced the high-street banks to close an increasing number of branches, which reduced the availability of retail banking services to the public, including ATMs."

On the issue of cards, the study said: "In relation to the use of debit and credit cards, some participants were able to extend expiry dates as a workaround to solve the difficulty of issuing new cards due to postal delays, but not all were able to do that." That could potentially leave some people without any access to money. The regulators also raised fears over whether Britain's telecommunications system would be able to cope with large numbers of people working from home.

The report called for the creation of a "co-ordinated strategy" to deal with these issues, with regulators such as the FSA warning financial firms that the issue of rolling over cards was something that would be "followed up".

The study was the largest test of the impact of an infuenza virus on a country's financial system "yet seen". Ministers have already said that the outbreak of a flu pandemic is one of the "key risks" affecting Britain.

The report found the City's wholesale financial markets would be able to operate in the event of a pandemic but warned that trading hours were likely to be cut. It said that financial companies felt it necessary to conduct nearly all trading "on site" rather than allowing staff to work from home. "Virtually all trading was conducted on-site as firms were not comfortable that they could be able to maintain a sufficient level of compliance [with regulatory rules] and control to allow trading from home on a prolonged basis," it said. "Firms responded to the growing shortages of front, middle and back office staff by reducing trading volumes. Despite the fall in activity the universal feedback from firms was that it was important to keep the markets open, even if on reduced hours."

The three authorities said they would be undertaking further work this year on improving procedures to make sure the financial system could cope with a pandemic, particularly on how to make the cash distribution system more resilient.